Labor costs for Detroit automakers expected to increase by up to $1B

UAW members on strike outside a GM plant in Flint Michigan on Sept. 16th, 2019.

Michael Wayland | CNBC

DETROIT – Labor costs for the Detroit automakers are expected to increase by up to roughly $1 billion in the coming years as a result of contracts ratified last year with the United Auto Workers union.

The Center for Automotive Research on Wednesday forecast average hourly labor costs during the four-year deals will increase by $11 per worker for Fiat Chrysler and $8 per worker at General Motors and Ford Motor.

Based on the number of workers in each company, the increased labor cost would add between $800 million and $1 billion to the automakers’ expenses by 2023. Those are costs the companies will look to offset in other ways, however they are expected to widen labor cost gaps with foreign competitors that don’t have a unionized workforce in the U.S. like Toyota Motor.

“The gap with the non-union automakers has widened quite a bit,” Kristin Dziczek, vice president of industry, labor and economics at CAR, said during a presentation on the results.

Labor costs for non-unionized foreign automakers in the U.S. are expected to increase by an average of just  $2 an hour by 2023, according to CAR, a nonprofit research group based in Ann Arbor, Mich.

CAR estimates Fiat Chrysler’s average hourly labor costs per worker will increase to $66 by 2023; GM will hit $71; and Ford will jump to $69. That compares to non-unionized foreign automakers at $52 an hour on average during that time period.

The labor cost estimates include wages, health care expenses, bonuses and other benefits under the deal. They don’t take into account potential offsets the companies won during the negotiations, such as plant closures and productivity gains.

Heading into last year’s contentious negotiations, which included a 40-day strike by GM workers, the Detroit automakers already had between a $5 and $13 labor-cost gap with foreign automakers producing vehicles in the U.S.

Labor costs, at roughly 5%, remain a small percentage of annual costs for the Detroit automakers, according to Dziczek.

Spokespeople with the Detroit automakers declined to comment directly on the forecasts. GM spokesman David Barnas said the “contract does the right thing for our employees without compromising GM’s competitiveness or manufacturing flexibility.”

“Importantly, we maintained the mix of our North American manufacturing footprint for products sold in the U.S. and the ability to adjust our workforce in response to changing industry levels,” he said in an emailed statement. “There was no increase to defined pension obligations or increased obligations to retirees, and we expect productivity gains to offset labor cost increases over the contract period.”

Going into the 2019 negotiations, the automakers wanted to retain, if not narrow, their all-in labor costs with foreign automakers.

Art Schwartz, a labor consultant and former GM negotiator, pointed out that despite the increases automakers were able to retain production flexibility and without significantly adding to their fixed costs.

“Most of, but not all, of the economics in this are not structural,” he said during the presentation. “They’re lump-sum cash, bonuses, profit-sharing … Most of what’s in here is cash. When companies are doing well, they can more easily afford the cash.”

Major wins for the UAW during the negotiations included wage increases, retaining gold-standard health care plans and all assembly production workers achieving top-pay of more than $30 by 2023. It also secured $18.2 billion in new investments in plants and will create or retain 25,400 U.S. jobs.

The automakers retained much of the flexibility they gained in recent contract negotiations but were unable to make much, if any, ground on ballooning health-care costs and temporary workers. They also were allowed to shed or close operations at a handful of plants.

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